On July 1, 2009, the Partnership acquired North Baja Pipeline, LLC (North Baja) from a wholly owned subsidiary of TransCanada Corporation (TransCanada). The acquisition was accounted for as a transaction between entities under common control, whereby the Partnership's historical financial information has been recast to include North Baja's results for all periods presented. The $6.2 million contribution to net income, or $0.15 per common unit, from North Baja since the acquisition partially offset the lower equity income from Northern Border Pipeline Company (Northern Border or NBPC) in third quarter 2009 compared to the same period last year. Equity income from Northern Border decreased primarily as a result of the $16.1 million (Partnership share - $8.1 million) gain on sale of Bison Pipeline LLC (Bison) in 2008.

"The Partnership's earnings and cash flows in the third quarter were solid as each of our natural gas pipeline systems performed well. While Northern Border remains challenged by the over supply of gas delivered into its market areas, the acquisition of North Baja in July enhances and diversifies the cash flows from our portfolio of pipeline investments," said Russ Girling, chairman and chief executive officer of TC PipeLines GP, Inc. "Looking ahead, the Partnership remains well positioned for growth and is expected to play an ongoing role in the financing of TransCanada's Cdn$22 billion capital program."

Partnership cash flows decreased $1.2 million to $40.4 million for third quarter 2009 compared to $41.6 million, prior to recast, for the same period last year. North Baja provided $8.5 million in cash flows from operating activities since the acquisition, which partially offset the decreased cash distributions from Northern Border. In third quarter 2008, cash distributions from Northern Border included a $8.2 million special one-time distribution for the proceeds received in connection with the sale of Bison. Please see the Partnership Cash Flows section for more detail.

Cash distributions paid by the Partnership were $30.7 million or $0.73 per common unit in third quarter 2009, an increase of $2.9 million compared to $27.8 million or $0.705 per common unit for the same period last year.

Financial Highlights
(unaudited)                          Three months ended   Nine months ended 
(millions of dollars except per            September 30,       September 30,
 common unit amounts)                   2009       2008      2009      2008
----------------------------------------------------------------------------
Net income(1)                           27.4       33.0      81.2      93.9
Net income prior to recast              27.4       28.3      72.9      81.1
 Per common unit(2)                    $0.65      $0.72     $1.78     $2.06
Partnership cash flows prior to
 recast(3)                              40.4       41.6     117.2     121.5
Cash distributions paid                 30.7       27.8      86.3      80.8
Cash distributions declared per
 common unit(4)                       $0.730   $  0.705    $2.165  $  2.110
Weighted average common units
 outstanding (millions)                 41.2       34.9      37.0      34.9
Common units outstanding at end of
 period (millions)                      41.2       34.9      41.2      34.9
(1) Because North Baja was acquired from TransCanada, the acquisition was
    accounted for as a transaction between entities under common control,
    similar to a pooling of interests, whereby the assets and liabilities of
    North Baja were recorded at TransCanada's carrying value and the
    Partnership's historical financial information was recast to include the
    acquired entity for all periods presented. The effect of recasting the
    Partnership's consolidated financial statements to account for the
    common control transaction increased the Partnership's net income by
    $4.7 million and $12.8 million for the three and nine months ended
    September 30, 2008, respectively, from amounts previously reported. In
    addition, the Partnership's net income increased by $8.3 million for the
    six months ended June 30, 2009 from amounts previously reported.
(2) Net income per common unit is computed by dividing net income, after
    deduction of the general partner's allocation, by the weighted average
    number of common units outstanding. The general partner's allocation is
    computed based upon the general partner's two per cent interest plus an
    amount equal to incentive distributions.
Effective January 1, 2009, the Partnership adopted the provisions of
Accounting Standards Codification (ASC) 260-10-55 Earnings Per Share -
Overall - Implementation Guidance and Illustrations - Master Limited
Partnerships. The retrospective application of ASC 260-10-55 has impacted
the amount of net income allocated to the Incentive Distribution Rights
(IDRs) held by the general partner. Previously, the net income allocated to
the IDRs was based on the cash distribution paid in the period, and now it
is based on the cash distribution declared for the period. This resulted in
a reduction in the net income per common unit of nil and $0.02 for the three
and nine months ended September 30, 2008, respectively.
(3) The effect of recasting the Partnership's consolidated financial
    statements to account for the common control transaction increased
    Partnership cash flows by $5.2 million and $14.0 million for the three
    and nine months ended September 30, 2008, respectively, from amounts
    previously reported. In addition, Partnership cash flows increased by
    $9.7 million for the six months ended June 30, 2009 from amounts
    previously reported. Partnership cash flows is a non-GAAP financial
    measure. Refer to the section entitled "Partnership Cash Flows" for
    further detail.
(4) The Partnership's 2009 third quarter cash distribution will be paid
    on November 13, 2009 to unitholders of record as of October 31, 2009.

Recent Developments

On July 1, 2009, the Partnership acquired North Baja from TransCanada and amended the IDRs held by TC PipeLines GP, Inc. by amending and restating the Agreement of Limited Partnership. The aggregate consideration of approximately $395 million provided to TransCanada included a combination of cash and the issuance of approximately 6.4 million common units. On a per unit basis, the transaction has been accretive to Partnership cash flows.

On October 22, 2009, the Board of Directors of TC PipeLines GP, Inc. declared the Partnership's third quarter 2009 cash distribution in the amount of $0.73 per common unit, payable on November 13, 2009, to unitholders of record on October 31, 2009. This cash distribution is equivalent to the second quarter 2009 distribution and represents a 3.5 per cent increase from the third quarter 2008 distribution of $0.705 per common unit.

Great Lakes Gas Transmission Limited Partnership (Great Lakes or GLGT) has approximately 830 thousand dekatherms per day (MDth/d) of longhaul capacity under contract expiring on October 31, 2010 with its largest shipper, TransCanada. On November 3, 2009, Great Lakes and TransCanada renewed contracts for one year for 470 MDth/d of capacity, some at a slightly discounted rate, and agreed to provide other transportation services. The remaining approximate 360 MDth/d of capacity will expire October 31, 2010. Great Lakes will actively market and post the expiring capacity for shipper interest in early 2010.

Net Income

The following net income information is presented to enhance investors' understanding of the way that management analyzes the Partnership's financial performance:

The shaded areas in the tables below disclose the results from Great Lakes
and Northern Border, representing 100 per cent of each entity's operations
for the given period.